By Andrew Young-
Almost half a million UK businesses have started 2018 in significant financial distress, according to insolvency specialist Begbies Traynor.
Its most recent“red flag alert” Begbies said firms across all UK regions and sectors were affected as the new year got underway. The whole economy felt the effects of higher inflation, rising interest rates, growing business uncertainty, and weaker consumer spending.
The revelation can be seen as a sign that firms are feeling the after effects of high consumer spending during the Christmas period right through to the new year. And firms may now be feeling the commercial effect of that. Uncertainties arising from Brexit also has its part to play in the decisions made by business investors and the perceived spending power of consumers too.
Ric Traynor, executive chairman of Begbies Traynor, said many firms had been hurt by the sharp fall in the value of the pound since the Brexit vote, which drives up the cost of goods imported from abroad.
“Prolonged exchange rate weakness undoubtedly hit some businesses hard last year and despite a recent recovery in sterling, this improvement is yet to feed through in terms of any widespread recovery in corporate health.
“Meanwhile, the impact of continued political and economic uncertainty surrounding the ongoing Brexit negotiations cannot be underestimated.”
A total of 493,296 businesses were experiencing significant financial distress in the final quarter of 2017 according to Begbies’ latest “red flag alert”, which monitors the health of UK companies. The figure was 36% higher than at the same point in 2016, and 10% higher than in the third quarter of 2017.
Traynor said the thousands of UK firms in financial distress would have to find ways to cut costs and improve productivity in order to ensure survival beyond the next 12 months.
The warning came in the week that Carillion, a construction firm employing 19,500 people in the UK, collapsed under a mountain of unsustainable debts. Financial distress was common among support services firms according to the Begbies report, as customers reined in spending. A total of 121,095 businesses in the sector were showing signs of financial difficulty, up 43% on a year earlier.
Firms in the construction and property sectors also experienced a spike in financial distress, according to the report
Geographically, London was the region with the highest number of affected businesses, with 121,528 companies ending 2017 in significant financial distress. The capital accounted for 25% of businesses in distress nationally.